The wooing of Keith Creel: The inside story of an epic battle between Canada’s rival rail giants

CP Rail, CN Rail: The inside story of how Keith Creel was won

There was never a bidding war. It was never about money

Canada’s top two railways have been competing tooth and nail for the better part of a century. But you would be hard pressed to find a time when tensions between Canadian National Railway Co. and Canadian Pacific Railway Ltd. were higher than at the start of this year.

CN had already launched a lawsuit last year against its former chief executive, Hunter Harrison, after he was recruited by New York hedge fund, Pershing Square Capital Management LP, to become CP’s CEO. CN also halted nearly $40-million in retirement benefits owed to Mr. Harrison alleging he was in violation of several non-compete agreements stemming from his retirement from CN in 2009.

Adding significant fuel to a raging fire, in early January CP and Pershing Square then solicited one of CN top executives, Keith Creel, to see if he was interested in becoming CP’s new president, head of operations, and likely successor to Mr. Harrison.

Related

This was not a move CP and its backers had taken lightly or had any intention of backing away from. The proxy battle waged by Bill Ackman’s Pershing Square Capital Management LP last year was never just about appointing Mr. Harrison as CEO to lead the railway’s turnaround, it was also about ensuring the investment was protected after Mr. Harrison, 68, stepped away from the role.

The standoff centering around Mr. Creel was ultimately resolved through an unprecedented series of one-on-one calls between CN’s chief executive, Claude Mongeau, and Mr. Harrison. Though these negotiations both men got much of what they wanted: CP got Mr. Creel and CN won a reprieve from its competitor’s possibly-relentless executive poaching campaign.

The tale of how CP managed to sign up Mr. Creel — and poach him from its dogged competitor — is perhaps the most aggressive case study in succession planning and executive recruitment in recent Canadian corporate history.

Paul Hilal, Pershing Square senior partner, first conceived the Pershing’s investment in CP, and led its activist campaign at the railway. He said Mr. Creel was always central in any succession plans, and that he even urged CP’s former board in their first meetings in the fall of 2011 to hire Mr. Creel before Mr. Harrison so that the two could hit the ground running.

Mr. Creel had been on Pershing Square’s radar for more than a year and a half after his name was raised in the first discussions between Mr. Hilal and Mr. Harrison in August 2011; before even Mr. Harrison was coaxed out of retirement to lead CP. Mr. Harrison had identified Mr. Creel then as the one active railroad executive ideally suited to lead the turnaround at CP Rail.

But a non-solicit agreement Mr. Harrison had with CN prevented anyone from approaching Mr. Creel until the agreement expired on Dec. 31, 2012.

Mr. Hilal said he has had Mr. Creel’s cell phone number burning a hole in his pocket since those first discussions. Because of the non-solicit, it was a number he dare not call.

“All my research into the guy was through indirect references. So, rather than call him and speak to him, I actually listened to CN’s earnings calls and investor events where he was speaking to get a sense of him as a person, how well he responded to questions, how he thought on his feet, and how well he would fit,” Mr. Hilal said.

“You can learn a lot about someone from listening to them,” he added.

Not surprisingly then, CP approached Mr. Creel just days after the non-solicit agreement expired at the end of 2012, and Mr. Hilal spent much of the first weekend in January trying to convince him to come aboard.

Coincidentally, the first phone call to Mr. Creel was made on Jan. 4, a year to the day after Mr. Ackman sent his now infamous email to CP’s former chairman, John Cleghorn, warning of a ‘nuclear winter’ if the board didn’t cede to Pershing Square’s demands, including appointing Mr. Harrison as CEO.

In those initial calls, Mr. Creel said he was interested in coming to CP on the condition the process moved quickly, Mr. Hilal said.

Mr. Creel also said he was obliged to tell Mr. Mongeau after he was approached.

This complicated things because it didn’t allow CP a quiet period to negotiate with Mr. Creel, and CN would also now be trying to find a way to keep him, Mr. Hilal acknowledged. (CN declined to comment for this story).

For his part, Mr. Creel said he wasn’t entirely caught off guard when CP approached him because he had worked hard and had a good relationship with Mr. Harrison.

“I stayed focused on what I was doing. At the same time, yes, I thought about it. I knew if the opportunity came, it would be very compelling and it would be tough to turn down, and Hunter isn’t the kind of guy who takes ‘no’ very well,” he said.

There were some major issues, however, including the lingering lawsuit between CN and Mr. Harrison as well as the non-compete clauses in Mr. Creel’s own contract at CN.

Only through the CEO-to-CEO calls between Mr. Mongeau and Mr. Harrison — two men who effectively control Canada’s entire rail system — would these issues be hammered out. Over the course of four or five calls, the CEOs agreed on a compromise that would see CP agree not to poach roughly 60 of CN’s top executives through 2016. In exchange CN would drop its lawsuit and let Mr. Creel join its biggest rival.

“There was never a bidding war. It was never about money. It was about what made sense and we were able to offer [Mr. Creel] something no one else could offer him, which was being part of a third great railroad turnaround. The thrill of that is unmatchable, and also the opportunity to the work again with Hunter,” Mr. Hilal said.

Mr. Harrison said he was pleased with the outcome, and that both he and Mr. Creel would be sitting down with CP’s top executives to hammer out an operating plan for the railway in the coming weeks.

“It’s wonderful. It gives me a little break, and we’re kind of splitting up the country.” Mr. Harrison said. “He’s a welcome addition and we’re proud to have him.”

Mr. Creel, too, said he was happy with what unfolded.

“I knew from the other side this was a sleeping giant,” Mr. Creel said. “This franchise is a very powerful franchise that was, to me, not being tapped into.”